The Indian Express Vocab 16 Jan 2018

Faultlines in economy

For the first three years of the Narendra Modi government, India had a “good macro” and a “tough micro”, which, in the last one year or so, has reversed to a “good micro” but a “tougher macro”. This perceptive (अनुभव करनेवाला) observation by Uday Kotak, chief of Kotak Mahindra Bank, in an interview given to this newspaper, captures the current state of our economy rather well.

Since the start of 2017, the Sensex has risen almost 31 per cent, reflecting investor optimism (अच्छा पक्ष देखना) over the earnings prospects of the underlying (अन्तर्निहित) companies whose stocks comprise the benchmark stock market index. While the earnings themselves may not have grown as much, there is no doubt that the balance sheets, at least of the top 500 listed companies (leaving out public sector banks and the dozen or so heavily indebted groups), are looking better than what they were three years ago. And with the ongoing insolvency and bankruptcy resolution process expected to lead to further consolidation (एकीकरण), even as the transitional (माध्यमिक) issues with the goods and services tax (GST) gradually get sorted out, the “micro” picture appears relatively promising.

But on the “macro” front, growth in gross value added is projected at 6.1 per cent in the current fiscal, as against 6.6 per cent in 2016-17, 7.9 per cent in 2015-16 and 7.2 per cent in 2014-15. A slowing economy has, moreover, been accompanied by annual consumer price inflation touching a 17-month-high of 5.21 per cent in December. Rising global oil prices — the average cost of crude imported by Indian refiners, at $67.32 a barrel on Friday, was higher than the $53.95 level a year ago and $27.33 two years back — have further muddied (गंदा करना) the picture. The effect isn’t just on inflation, which, in turn, rules out the possibility of interest rate cuts by the RBI.

It is also on government finances, under strain from sluggish (अक्रियाशील) revenue collections post-GST. Simply put, we have “macro” challenges on both growth and inflation fronts, and there is little that fiscal or monetary policy can do to address these.

It raises a fundamental question. Stock prices have surged (आगे बढ़ना) to levels that Kotak fears may even point to a bubble in the making. Even discounting for that risk, the fact is India Inc is today doing better than the broader economy. This partly has to do with the deleveraging and restructuring that many corporates have carried out over the last many quarters, whose rewards are showing now.

It also has to do with their gaining market share from small and medium enterprises that have fallen by the wayside (राह का किनारा) following demonetisation and GST. How sustainable, both economically and politically, is this situation where the “macro” does not matter beyond a point for the micro universe of listed companies remains to be seen.